Abstract:
This study focuses on the Ricardian model of comparative
advantage with one factor of production and two countries, but in a
multi-goods dimension. This is used to explain the pattern of trade
that exists between South Africa and the United States’s
manufacturing industries. The empirical test of the Ricardian model is
carried out using a panel data approach on 23 manufacturing
industries. The estimations were performed using both a one-way
and two-way error component model and a stationary panel
technique were applied to the equations. The advantages of
progressing from cross-sectional estimations to a panel data
estimation technique is that the efficiency of estimating the
parameters will be improved. It also gives more informative data,
more variability, less collinearity, more degrees of freedom and the
effect of omitted variable bias is reduced. The results show that the
pattern of trade between South Africa and the United States conforms
to the Ricardian theorem.
